Irish Govt guarantees banks for two years

is_that_so

http://www.rte.ie/business/2008/0930/saving.html
Gerorge Lee was on doing his best Joe Duffy impression. Potentially could cost €500bn according to Davy. http://www.davy.ie/Generic?page=MorningNews2. ISEQ up 3%, all other markets down but world still here. All good eh I think.

FlutterinBantam

It had to be done,in my opinion otherwise the whole system could have collapsed.

What I got from it was:

All deposits in banks operating in Ireland guaranteed up to €100k per bank

All lending by 6 main Irish banks guaranteed for two years.

Exposure to the taxpayer around 400 billion, however obviously the Govt. believe this will not happen as our GNP is around 150 billion.

Markets in banking shares rose sharply today.

Losers ... who knows, hopefully not the taxpayer
Winners... depositors who can now have confidence and not cause a run on money by withdrawing their deposits.

constitutionus

just out of interest IF this is needed, where's the cash coming from?

this "bank charge" wont cover it as by its very nature its the fecking banks that NEED the cash and were already breaking ECB rules to pay the public sectors wage this year borrowing 10 billion.

if we REALLY need TEN times the national debt we're not only are fcuked as a country were out of the euro too.

the man may as well promise to give us all a million quid for all this is worth. christ the money involved is LARGER than what the yanks are looking for in the states !

FlutterinBantam

That's the bet the Govt. are taking, that it will never be needed, because if it is, we are all fooked.

is_that_so

From what I heard this morning there is no "cash" but a guarantee to banks. The main aim behind it is to allow banks to borrow on the interbank market so other banks lending Irish banks money are guaranteed that the Govt will pick up the bill if the banks default. The banks will have to pay a charge for this. As someone over in Economics has commented, if we get to that €400/€500bn cost it won't just be Govt debt we'll have to worry about.

SEPT 23 1989

this had to happen or the Irish economy would have collapsed through lack of lending but it disgusts me (a taxpayer)to have to bail out these people:mad:

mobby

Anyone know what the story is with the likes of First Active, who i have me morgage with and a few bob in savings.
Not mentioned in the list of banks guaranteed?

SEPT 23 1989

banks are only covered if their headquarters are in the Republic

is_that_so

SEPT 23 1989 wrote: »

this had to happen or the Irish economy would have collapsed through lack of lending but it disgusts me (a taxpayer)to have to bail out these people:mad:

This is not a bailout. Banks are getting no money. What it is, is an attempt to stabilise our financial system.

constitutionus

yup, NIB rabbo et al are excluded from this.

FlutterinBantam

Yes banks only covered if Hq in Republic

Deposits covered up to 100k is bank operates in republic.. eg Rabo etc.

SEPT 23 1989

is_that_so wrote: »

This is not a bailout. Banks are getting no money. What it is, is an attempt to stabilise our financial system.

right so its not exactly a bail out but you do think the main banks here could have lasted if this did not happen their stock worth nothing and no other bank lending any irish bank any more money?

FlutterinBantam

Irish banks are well capitalised, however such is the size of our economy,relative to the global problems, no bank could sustain continuing meltdown on the global markets.

SheroN

Does this guarantee cover money in my current account?

FlutterinBantam

Yes would be my answer.

Bluetonic

SheroN wrote: »

Does this guarantee cover money in my current account?

If you've over 100k in a current account you really need some financial education.

As for your question without you telling us where you current account resides no one can answer that.

SheroN

Bluetonic wrote: »

If you've over 100k in a current account you really need some financial education.

As for your question without you telling us where you current account resides no one can answer that.

If i have over 100k in my current account. Imagine what I have in my savings!

Current account is with AIB.

Run_to_da_hills

Bluetonic wrote: »

If you've over 100k in a current account you really need some financial education.

Either that or else hes loaded

brianthebard

Yay everything's ok again we can start spending!!!!

is_that_so

SEPT 23 1989 wrote: »

right so its not exactly a bail out but you do think the main banks here could have lasted if this did not happen their stock worth nothing and no other bank lending any irish bank any more money?

It's not a question of stock price, although shareholders have really lost out, including the likes of pensions funds. This addresses the whole financial system, the future of the economy and the ability of banks to borrow in order to provide loans to the rest of the economy. It's also been described as pre-emptive and will take away some of the fear/gambling on Irish bank shares. There are also a suggestion that the plan may serve as a template for other countries.

FlutterinBantam

is_that_so wrote: »

It's not a question of stock price, although shareholders have really lost out, including the likes of pensions funds. This addresses the whole financial system, the future of the economy and the ability of banks to borrow in order to provide loans to the rest of the economy. It's also been described as pre-emptive and will take away some of the fear/gambling on Irish bank shares. There are also a suggestion that the plan may serve as a template for other countries.

A big issue now will be fiscal rectitude from the banks ,as now that they are "underwritten" by Ireland inc, we must make sure they don't act the cowboy with money, knowing the safety net is in place for two years.

Also the very geezers who made megabucks from the boom and faced dramatic down turn , the share option dudes, ironically, benefit from the buttressing by the Govt.(You and me) as the share price rises again.

A lot of work done....................................

Captain Darling

Where do credit unions fit into all this?

FlutterinBantam

I would say they are not included, I could be wrong,but I would expect that a members institutions and not on the open market that they are not.

Nehaxak

Can't say I'd even pretend to understand everything in regards all of this but I can be sure to understand that if something like this was not done today then we could possibly have seen the beginnings of a complete collapse of the stock market here (Mr Isaac Index) over the next couple of days/weeks and the losses would far have outweighed the cost of this package.
To think that it would not eventually (or in some cases even quickly) effect the rest of us all in the country is naive.
What pisses me off though is that this has to be done in the first place.

On one hand I'm annoyed because banks and financial institutions let themselves get into this mess and we the people have to bail them out with our tax money but on the other hand I know that if we didn't we'd all be fecked sooner or later. I think the banks themselves know this all too well, cute buggers that they are but really, it's a kind of socialist type of ideal to bail out capitalism when it fails.

Captain Darling

FlutterinBantam wrote: »

I would say they are not included, I could be wrong,but I would expect that a members institutions and not on the open market that they are not.

If they had a run on their money it would be fairly lethal, as far as i can make out they they make their money from giving loans to their members, and probably use the members shares as security. Seems kind of a dodgy situation to me.

FlutterinBantam

Nehaxak wrote: »

Can't say I'd even pretend to understand everything in regards all of this but I can be sure to understand that if something like this was not done today then we could possibly have seen the beginnings of a complete collapse of the stock market here (Mr Isaac Index) over the next couple of days/weeks and the losses would far have outweighed the cost of this package.
To think that it would not eventually (or in some cases even quickly) effect the rest of us all in the country is naive.
What pisses me off though is that this has to be done in the first place.

On one hand I'm annoyed because banks and financial institutions let themselves get into this mess and we the people have to bail them out with our tax money but on the other hand I know that if we didn't we'd all be fecked sooner or later. I think the banks themselves know this all too well, cute buggers that they are but really, it's a kind of socialist type of ideal to bail out capitalism when it fails.

That post shows you have a very good understanding of the scenario,very succinctly put.

hot2def

Nehaxak wrote: »

On one hand I'm annoyed because banks and financial institutions let themselves get into this mess and we the people have to bail them out with our tax money .

personally, *I'm* annoyed at the huge number of eejits, not much older than myself (27-33ish) who, upon leaving school/college decided that life owed them their own house, huge car and a rake of kids they can't actually afford, but they just had them anyway.

Thanks to these morons the economy is going south, and despite the fact that I knew better than to live beyond my means and don't have one red cent of debt, I get to worry about my livelihood.


i heard them talking on the radio the other day about how "Lidl is actually ok to shop in" and some bint talking about how she couldn't afford Tesco now. Hey Love, you couldn't actually afford it before either, that's the problem.

javaboy

hot2def wrote: »

personally, *I'm* annoyed at the huge number of eejits, not much older than myself (27-33ish) who, upon leaving school/college decided that life owed them their own house, huge car and a rake of kids they can't actually afford, but they just had them anyway.

The banks just repossessed my neighbour's house, huge car and rake of kids.

Shame. It was a nice car.

Overheal

javaboy wrote: »

The banks just repossessed my neighbour's house, huge car and rake of kids.

Shame. It was a nice car.

You didn't try and barter your ma to get it back?

javaboy

Overheal wrote: »

You didn't try and barter your ma to get it back?

No. It was a Mercedes SL500.

Overheal

you mighthave got the wheels back for her. maybe a couple of the doors if she was a milf.

javaboy

Overheal wrote: »

you mighthave got the wheels back for her. maybe a couple of the doors if she was a milf.

She's not. I would have only been wasting their time. 19" wheels would look stupid on my Yaris anyway.

Rowley Birkin QC

is_that_so wrote: »

Potentially could cost €500bn according to Davy.

Ah don't pay any heed to Davy, he's just trying to diversify after the All-Ireland.

The_Conductor

Does the guarantee have any implications from a State Aid perspective? While it is not actual expenditure, it is a potential financial exposure at current levels of approx. 435billion....... Its massive. The AIB bailout is a laugh in comparison.

is_that_so

Seeing as so much is unknown I'd hazard a guess that inaction could have proved more costly. The reaction of the ISEQ today suggests that it might be a good idea. I think it was a smart one. €435bn is if the whole system collapses and all the banks fail. There was also a perceived risk that large corporate deposits could've flowed out of Irish banks and the guarantees should help stem that and may even attract more money. Not a bailout as banks will have to pay for it. As I heard someone say on radio, "the fire needs to be put out first before we get to the blame game".

daveharnett

Am I right in saying that the 5 to 7 hundred billion is the projected total size of the underwrite?

If so, we would only have to pay it all if ALL of the VARIOUS banks' are forced to close, and at the same time as all of their cash, properties, mortgages and other assets magically disappear? Otherwise, a fair amount of any potential underwrite would be covered by the liquidation of a failing bank's assets, yes?

Peteee

daveharnett wrote: »

Am I right in saying that the 5 to 7 hundred billion is the projected total size of the underwrite?

If so, we would only have to pay it all if ALL of the VARIOUS banks' are forced to close, and at the same time as all of their cash, properties, mortgages and other assets magically disappear? Otherwise, a fair amount of any potential underwrite would be covered by the liquidation of a failing bank's assets, yes?

Pretty much. If all the banks failed... well you'd have more to worry about then the 400bn bill, I'd be more worried about looters and the local dunnes running out of food!

Peteee

is_that_so wrote: »

There was also a perceived risk that large corporate deposits could've flowed out of Irish banks and the guarantees should help stem that and may even attract more money.

Theres reports of a lot of deposits going into Northern Rock, as this bank has the implicit backing of the UK government, given they nationalised them last year (Or whenever it was) so its considered safe as... houses

The_Conductor

I laughed when I heard the statement from Michael Fingleton on Six-One where he implied that this action would unblock the housing market and underpin houseprices, giving first time buyers the confidence to go and spend again........

AlmightyCushion

smccarrick wrote: »

it is a potential financial exposure at current levels of approx. 435billion....... Its massive.

While it could potentially be that high, in reality it would never be. That figure is if every single person in the state lost 100,000. In reality there aren't many people who would have any where near €100,000 in a bank account. Hell, I know a lot of people who would be lucky to be in the black by the time pay day comes.

FlutterinBantam

FlutterinBantam wrote: »

Yes banks only covered if Hq in Republic

Deposits covered up to 100k is bank operates in republic.. eg Rabo etc.

Apparently not quite true,deposits in Rabo not included in the guarantee as they have no branches in the Republic. So I'm told.

However I'm led to believe that Rabo has a triple A rating which is equivelent to the security guarantee given by the irish Govt. so I wouldn't worry there.

My name is Mud

Rabo are not in the €100k scheme, as they didn't apply to the Irish Govt to be included.

They didn't apply as they are confident enough that they wont go under.

Heres the info of whats covered:
http://www.itsyourmoney.ie/index.jsp?1nID=93&2nID=100&nID=153&aID=620

daveharnett

AlmightyCushion wrote: »

While it could potentially be that high, in reality it would never be. That figure is if every single person in the state lost 100,000. In reality there aren't many people who would have any where near €100,000 in a bank account. Hell, I know a lot of people who would be lucky to be in the black by the time pay day comes.

I think the sums are a bit more complicated than that cushion. The banks owe money to people other than it's customers. The fact that the banks give out more money than it takes in is why the banks need this guarantee in the first place.

The_Conductor

daveharnett wrote: »

I think the sums are a bit more complicated than that cushion. The banks owe money to people other than it's customers. The fact that the banks give out more money than it takes in is why the banks need this guarantee in the first place.

Correct- they have a pre-approved liquidity ratio (which I believe was recently increased from around 7% to 10%- which is one of the reasons that dividends have been cut for shareholders and banks have been attempting to attract further funds- totally aside from the lack of working capital for their day to day business).

The_Conductor

From this morning's Indo:

http://www.independent.ie/business/irish/state-bailout-far-from-being-the-commercial-deal-cowen-claims-it-is-1486487.html

By Bernard Waters, Wednesday October 01 2008

The government's decision to unconditionally guarantee Irish bank deposits and inter-bank loans exposes the taxpayer to potentially huge risks. With property prices still falling, it is likely that the government's deposit guarantee will be called upon sooner rather than later.

Between them, the Irish banks owe their depositors, other banks and bondholders almost €400bn. That's more than twice the value of our total annual economic output and 10 times the total national debt.

Guarantee

Presenting the guarantee scheme to the Dail yesterday, Taoiseach Brian Cowen portrayed it as a commercial arrangement, with the banks paying a market-determined fee to guarantee deposits and wholesale funding.

It is, of course, nothing of the sort. Before the government's dramatic move yesterday, Irish banks were paying between 2.5pc and 5.5pc over Euroibor for wholesale funding. If the guarantee scheme were to reflect market reality, then the banks should be paying somewhere between 2.5pc and 5.5pc of the amount guaranteed, from €10bn to €22bn a year, to the government.

Will the government charge the banks anywhere near this amount for the guarantee? Will it what?

Even a €10bn premium would more than wipe out the profits of the Irish banking system. This isn't an arms-length commercial transaction, but the first stage in what is likely to be a protracted bailout of the banks, whose balance sheets have been stretched to breaking point and beyond by the collapse in Irish property prices.

Total property-related lending by the Irish banks now stands at a towering €240bn. Even a 10pc writedown in the value of this lending would wipe out more than half the reserves of the Irish banks.

The biggest risk posed by yesterday's move is what bankers call "moral hazard". With the government's unconditional guarantee of all deposits and inter-bank funding having eliminated the danger of a "run" on a bank by nervous depositors, what is there to stop financial institutions lending irresponsibly in the knowledge that the state will pick up the tab?

To take a hypothetical example, Bank A has been approached by Developer B to lend him money to fund a property development scheme. Up to yesterday, Bank A, experiencing difficulty attracting money from depositors and other banks, and sceptical about the merits of the scheme, was reluctant to lend Developer B the money.

Now, with the government having unconditionally guaranteed all deposits and inter-bank funding with Irish-owned banks, Bank A is awash with funds once again.

So will Bank A now lend Developer B, with whom it has a long relationship, the money he is seeking, rather than stick with its earlier reservations?

Extreme

While this is no doubt an extreme example, it will be almost impossible for the government to avoid being dragged further and further into the day-to-day running of the banks as it seeks to prevent them from abusing the guarantee.

The guarantee scheme will almost certainly turn into the financial equivalent of a tar baby: the more desperately the government seeks to escape from its clutches, the more enmeshed it will become.

With more than one of the banks covered by the guarantee likely to experience problems in the near future as the true state of property loan books emerges, it will be difficult, if not impossible, for the government to maintain the fiction that yesterday's guarantee is no more than a temporary little arrangement. Far more likely is that it will be the start of a long drawn-out process that will last for many years and cost the taxpayer tens of billions of euro.

- Bernard Waters

The_Conductor

My initial concern regarding State Aid has also come up:

http://www.independent.ie/business/european/europe-to-investigate-states-deposits-pledge-1486489.html

By Ailish O'Hora Business News Editor, Wednesday October 01 2008

THE European Commission (EC) is to investigate the Government's plan to guarantee all bank deposits in its bid to improve the industry's access to international funds frozen by the credit crunch.

The Commission will focus its investigation on the competitive aspects of the deal and will consider whether the lifeline to the banks could be considered State aid. It is understood that once the EC has the details of the plan, it could make a ruling on it within a week.

It will also consider the competition aspects of the deal as it does not cover non-Irish owned banks operating in the Irish market, like Ulster Bank, which is owned by Royal Bank of Scotland and Rabobank.

And, while the banks are paying for the guarantee at a commercial rate, the EC will still have to investigate this aspect of it.

Decision

Commission spokesman Jonathan Todd said yesterday that the length of time it takes the EC to make its decision will depend "on how much information we get and the degree of co-operation we have from the Irish authorities."

He confirmed that the EC had been made aware of the deal before an announcement was made yesterday.

Yesterday there were some suggestions that the Irish pledge, which covers up to €400bn of liabilities, or more than twice the country's annual GDP and includes retail, commercial and interbank deposits for two years, could be used as a template for other countries. "This may be a template for rescues elsewhere if Irish banks can replenish their capital base," said Harvinder Sian, a fixed-income strategist at Royal Bank of Scotland. "That would, over the medium term, positively impact risk assets."

However, others said it might not be that simple. "The banking liabilities of the Irish domestic banks relative to Gross Domestic Product would not be as extensive as say that of the Germans or Swiss," said Scott Rankin, an analyst at Davy Research.

- Ailish O'Hora Business News Editor

Peteee

FlutterinBantam wrote: »

However I'm led to believe that Rabo has a triple A rating which is equivelent to the security guarantee given by the irish Govt. so I wouldn't worry there.

A triple A rating... just like the ones Lehman and AIG had the day before they went bust?

kmick

Does anyone find it scary that the Irish government are providing 400 billion but that the US bailout plan is only 700 billion? This to me would indicate the US bailout plan is not sufficient to address their problem.

TPD

kmick wrote: »

Does anyone find it scary that the Irish government are providing 400 billion but that the US bailout plan is only 700 billion? This to me would indicate the US bailout plan is not sufficient to address their problem.

€400bn vs $700bn - roughly the same.

Edit: Well not quite, but Ireland's is still unrealistically high.

The_Conductor

kmick wrote: »

Does anyone find it scary that the Irish government are providing 400 billion but that the US bailout plan is only 700 billion? This to me would indicate the US bailout plan is not sufficient to address their problem.

They have already advanced in excess of 600 billion to financial institutions at overnight rates- part one of the proposed US plan only called for an initial 350bl more- i.e. only bumping up what has already been fed into the system by another 35%...... Yes- the US plan is most probably pissing in a bucket- but its sentiment that counts as much as anything else.

With respect of the Irish plan- it screams of panic, and despite the bleating of the Taoiseach is no more on commercial terms than a hit and run accident is...... Its quite laughable, precisely because if a worst case scenario did evolve- we are not in a position to honour the guarantee.......

Does anyone know if there is a mechanism for impeaching a sitting government in this country?

Run_to_da_hills

kmick wrote: »

Does anyone find it scary that the Irish government are providing 400 billion but that the US bailout plan is only 700 billion? This to me would indicate the US bailout plan is not sufficient to address their problem.

The Irish Government dose not have 400 Billion, it is only calling its bluff to give some credibility for the banks to prevent a rush on deposits.